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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Hay & Co. v. Torbet [1907] ScotLR 250 (17 December 1907)
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Cite as: [1907] ScotLR 250, [1907] SLR 250
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SCOTTISH_SLR_Court_of_Session
Page: 250↓
Court of Session Inner House Second Division.
[Sheriff Court at Perth.
v.
Facts:
When a debtor pays money on account to his creditor, if the debtor has not appropriated particular payments to particular debts the appropriation is governed by the intention of the creditor, either express, implied, or presumed. In the absence of contrary indications such intention may be presumed from the form of the account he has rendered to the debtor. Where it is in the form of an account-current, of the nature of that between a banker and his customer, the presumption is that the payments extinguish the items of debit in their order in the account.
An account between a farmer and a firm of cattle auctioneers, rendered by the latter to the former, set forth in a column in order of date the cattle, hay, etc., sold and the cash advances made by the firm to the farmer, and below it, in another column, in order of date the payments, generally in cash, but sometimes in cattle, made by the farmer to the firm. Each of these columns was then added up, and the latter deducted from the former, and the balance struck.
Held that the account was not an account-current giving rise to the above presumption. Devaynes v. Noble ( Clayton's case), 1 Merivale 530, 3 Ross L.C. (Commercial Law) 643; “ The Mecca” [1897] AC 286, discussed.
On 7th May 1904 Robert D. Torbet granted to Hay & Co., auctioneers, Perth, an obligation under which he guaranteed “full and final payment of all purchases made, or that may be made, and of all sums advanced, or that may be advanced, by you to Alexander Cromb, dairyman, St. Martins, Balbeggie, with interest at the
Page: 251↓
rates as may from time to time be charged by you, declaring that the said sums shall not exceed the total of seventy-five pounds sterling (£75). And, further, providing and declaring that this guarantee shall be a continuing obligation until recalled in writing.” Thereafter various dealings took place between Alexander Cromb and Hay & Company, and on 1st August the whole business of Hay & Company was transferred to Hay & Company, Limited, who were incorporated under the Companies Acts, and who took over as at that date the whole assets and liabilities of Hay & Company. No notice was sent to Torbet. At that date Cromb owed Hay & Company £67, 4s. 6d. Thereafter he continued to deal with Hay & Company, Limited, to whom he became still further indebted, and who on 26th January 1905 sent him the following account bringing out a balance against him of £87, 10s. 10d. as at 2nd January 1905:—
“Account, Mr Cromb, Woodside Cottage, Balbeggie, and Messrs Hay & Company, Limited, Perth.
1904 Feb. 19 To 1 cow,
£13
12
6
“26 To 1 do.,
15
7
6
Mch. 4 To 1 do.,
18
0
0
Apl. 29 To 1 do.,
10
10
0
May 13 To 1 do.,
8
15
0
May 13 To Insurance,
0
1
6
July 15 To 1 cow,
12
15
0
July 15 To Insurance,
0
1
6
July 29 To 1 cow,
8
0
0
July 29 To Insurance,
0
1
6
Aug.10 To Southtown hay,
11
14
6
Sep. 3 To Windeye sale,
2
11
4
Oct. 14 To 2 cows,
28
12
6
Oct. 14 To Insurance,
0
1
6
Oct. 29 To Southtown stocking sale,
11
5
0
Nov. 12 To Southtown sale,
2
4
6
143
13
1
10
1904 Mar. 14 By cash,
£4
0
0
Apl. 11 By do.,
4
0
0
May 10 By do.,
4
0
0
June 20 By do.,
3
0
0
July 15 By do.,
5
0
0
Aug. 16 By do.,
4
0
0
Oct. 10 By 1 cattle,
8
7
0
Oct. 24 By 1 do.,
7
2
6
Jany. 2 By 2 do.,
21
5
0
60
14
6
£82
19
4
To interest,
4
10
0
£87
9
4
Insurance on cow, 14 Oct.,
0
1
6
£87
10
10”
On 26th July 1905 Torbet wrote to Hay & Company, Limited, withdrawing his guarantee as from that date. On 29th July Hay & Company, Limited, replied that Cromb was already in their debt to more than the full amount of the guarantee, of which they accordingly demanded payment in full.
Torbet having refused to make any payment, Hay & Company and Hay & Company, Limited, raised the present action against him in the Sheriff Court at Glasgow for the sum of £64, 4s. 6d., the amount of Cromb's indebtedness to Hay & Company at 1st August 1904, the pursuers now admitting that Torbet's guarantee was terminated ipso facto by the change in the firm, of which he was not notified, and that accordingly he could not be made liable for debts incurred by Cromb after that date.
The defender's contention was that at 1st August 1904, when his guarantee ceased, Cromb was not indebted to the pursuers, inasmuch as the pursuers' account showed that they had appropriated the payments made by him after that date to the debts incurred before that date, with the effect of extinguishing them entirely.
The pursuers' contention was that at the date in question Cromb was indebted to them for the amount sued for, inasmuch as the facts showed that they had actually appropriated the payments made after 1st August to debts incurred after that date, and further that, in any case, the account did not warrant the inference the defender drew from it.
A proof was taken by the Sheriff-Substitute ( Sym), the result of which, in so far as not stated above, may be gathered from the opinions of their Lordships infra.
On 2nd July 1907 the Sheriff-Substitute pronounced an interlocutor decerning against the defender for the sum sued for.
On 15th October 1907 the Sheriff ( C. N. Johnston) affirmed that interlocutor.
The defender appealed to the Court of Session, and argued—He was not liable to pay anything on his guarantee, because Hay & Company, Limited, had appropriated the payments made by Cromb after 1st August to the old debt and had extinguished it. Where the guarantee of a current account was revoked by a change in the firm to which the guarantee was given, and dealings under the account guaranteed continued to be carried on with the new firm, payments made into the account after the change in the firm were, in the absence of evidence to the contrary, presumed to be appropriated towards extinguishing the balance due at the date of the revocation of the guarantee— Pemberton v. Oakes, 1827, 4 Russell 154, at page 168; Bodenham v. Purchas, 1818. 2 Barn. and Ald., 39, 3 Ross's Leading Cases Commercial Law. page 661; Hooper v. Keay, 1 QB D 178, at 181; Lang v. Brown, Dec. 2, 1859, 22 D. 113; Gloag & Irvine, Rights in Security, page 933. The presumption in this case was further strongly supported by the form of the account rendered by Hay & Company, Limited, to Cromb. The account was to all intents and purposes an account current, governed by the rule established in Devaynes v. Noble ( Clayton's Case), 1816, 1 Mer. 530, 3 Ross's Leading Cases Commercial Law, 654, viz., that in such an account the payments extinguish the items of debit in the order in which they stand in the account. There was no authority for the proposition that the rule applied only to bankers' accounts and pure cash accounts. All that was required was a composite or continuous account, such as the account here— Scott's Trustees v. Alexander's Trustee, January 10, 1884, 11 R. 407,
Page: 252↓
21 S.L.R. 281: M'Kinlay v. Wilson, November 18, 1885, 13 R. 210, 23 S.L.R. 134. There was no evidence in the case to contradict the inference to be drawn from the form of the account. Argued for the respondents—The appellant was liable under his guarantee to the extent of the sum sued for, the payments made after 1st August having been applied to debts contracted after and not before that date. “ The Mecca,” 1897, A.C., page 286, had modified the law upon this point, and settled that—failing appropriation by the debtor, which was not suggested here—the ultimate criterion was the intention of the creditor, and that the rule of Clayton's case only applied (1) in the absence of contrary evidence— cf. in re Hallett's Estate, 13 Ch D 696, at 728; (2) where there was an account-current between the parties of the nature of the account between a banker and his customer. Neither of these conditions were fulfilled here. There was, in the first place, ample evidence apart from the account to show that in fact the new company had appropriated the payments after 1st August to debts incurred after that date. In the second place, the account was not an account-current, as was clear from its form. There was no setting of the daily entries off one against another, but at the end of the account the credit items were all added up and deducted from the debit. The authorities all showed that the rule in Clayton had never been applied to such an account—compare, in addition to the cases already cited, Batchelor's Trustees v. Honeyman, June 18, 1892, 19 R. 903, 29 S.L.R. 780; Lowson v. Ingham, 1823, 2 B. and C. 65: Dougall v. Lornie, July 19, 1899, 1 F. 1187, 36 S.L.R. 927. M'Kinlay v. Wilson ( cit. supra) was distinguishable, because there it was proved that the parties intended the account to be an account-current. The question was not affected by the fact that it arose between the creditor and the debtor's cautioner, and not the debtor himself—see Eyre v. Everett, 1826, 2 Russ. 381; Creighton v. Rankin, 7 Cl. and F. 325.
The defence is that Cromb made payments to Hay & Company, Limited, which if appropriated to the first items in the account with Hay & Company would extinguish the obligation. The contention is that the rule as to appropriation of payments on accounts-current applies to the kind of account with which the Court has to deal, viz., that where there has been no special appropriation of payments these must be held to apply to and to go to extinguish the first items of debt. That there is in cases to which the rule is appropriate such a legal presumption is not doubtful, and indeed is not disputed. But the pursuers maintain that the case is not one in which the presumption applies, and further that if it did apply it is a presumption which can be redargued, and that it is redargued by the facts disclosed in the documentary and oral evidence.
If it were necessary to decide the question whether there was in this case an account-current between the parties, in the true sense of that expression, I should hold that there was not any such account-current. It is true that while an account between a bank and a customer to whom advances are being made is the most direct illustration of an account-current to which the presumptions as to appropriation of payments applies, yet it is quite certain that accounts of a similar character, although not occurring in business of a strictly banking type, may be held to be in the same position. The case of M'Kinley v. Wilson may be taken as an illustration of an account-current which was an account of transactions not purely of a banking character, including as it did purchases and sales. Nevertheless, on the facts which brought out the intention of parties, it was held that the account which was made out as an “account-current” was truly of that character, and the presumptions as to appropriation of payments applied. But in cases where the accounts truly disclose trade transactions the presumption does not apply. Where in course of a series of transactions of trade, payments are made to account, these go against the general indebtedness, the debtor not being entitled to claim that they presumably go to clear off the first items, and the creditor not being entitled to shut the debtor out from his defence against the liability for any particular item by maintaining that the debtor in making payment has cleared off that particular item and cannot go back upon it.
Now, in my opinion, the whole character of the accounts in this case is against the idea of the application of the doctrines which apply to accounts-current. It may be true that the pursuers did not absolutely confine their dealings with Croom to transactions of purchase and sale, and sometimes helped him over a temporary difficulty by financial aid. But that would not, as I think, necessarily convert what was in its general character a tradesman's account into an account-current. Therefore, as I said before, if it were necessary to decide the matter strictly, I should be inclined to hold that the defence set up on the theory of an account-current must fail.
But I am clearly of opinion that if there were any ground for holding that this was an account to which the doctrine of particular appropriation might apply, the presumption arising upon it has been completely redargued. The present pursuers, when they took over the business and assets of Hay & Company, made their
Page: 253↓
I am therefore in favour of affirming the judgment in the Court below. The case will require to go back to the Sheriff that the question of interest may be settled, and in that view I would propose that the expenses in this Court should be awarded to the successful party, and that power should be given to the Sheriff to decern for them.
The only difficulty I have had in this case is that it arises not between the parties to the account but between one of them (the creditor) and a cautioner for the debtor, and that there was a change in the persona of the creditor during the currency of the account by the conversion of the private firm into a limited company—a change which (everybody is now agreed) brought the liability of the cautioner to an end as from the date of the conversion on 1st August 1904, but which neither limited company nor cautioner understood at the time as having that effect. I say that, because if the cautioner had realised his position he would not have written the letter of 26th July 1905, in which he declared that in any event he would take no responsibility beyond that date, although in truth his responsibility had ceased a year before, and the company on the other hand, if they had recognised the truth, would have intimated the change to the complainer at once, and would certainly not have replied to his letter repudiating further responsibility by writing the letters of 29th July and 4th August, in which they claimed payment of the full limit of his liability (£75), which clearly implied that they believed his liability to have continued after the formation of the limited company. Neither party, I believe, thought at the time that the conversion of Hay & Company into Hay & Company, Limited, made the least difference in the matter. The cautioner simply remained quiescent, while Hay & Company, Limited, went on dealing with the debtor till he became bankrupt in August 1905. They now sue the cautioner for the amount of the purchases remaining unpaid by the debtor down to the formation of the limited company, less the payments made to account by him before that date, the amount sued for being £67, 4s. 6d., with interest. But the defender claims to have the benefit of all the payments to the credit of the account in their order, whether before or after that date, on the assumed principle of Devaynes' case.
But, notwithstanding the misconception, common to both parties, which I have pointed out, and which is not shown to have prejudiced the cautioner's position, I have come to agree in what I understand to be the view of all your Lordships, viz., that the account between the auctioneers and Cromb is not an account-current to which the rule in Devaynes' case can apply, and that, even if it were, the limited company did evince an intention so to appropriate the subsequent payments into the account as to make Cromb, as far as possible, pay his way.
The parties are agreed that the defender is not liable for any advances made or goods supplied by Hay & Company, Limited to Alexander Cromb after the incorporation of the limited company, but the defender further maintains that the guaranteed debt has been extinguished by payments made by Alexander Cromb to Hay & Company, Limited, after 1st August 1904, and the only question which was discussed on the appeal was whether the defender was entitled to have such payments imputed to the extinction of the debt of £67, 4s. 6d. I am of opinion that he was not so entitled, and that accordingly the judgment of the Sheriff ought to be affirmed.
This case is of some interest as being, so
Page: 254↓
Two points were raised at the debate— first, whether the account, which was the only account rendered by Hay & Company, Limited, to the principal debtor, was so stated as to infer a presumption against the pursuers that the payments to account claimed by the defender had been appropriated by the pursuers to the items due by Mr Cromb to them in order of date, or, in other words, whether the account was a proper account-current between the parties similar to that between a banker and his customer? and second, whether on and after 1st August 1904 the payments made by Mr Cromb to Hay & Company, Limited, were appropriated by them from time to time to particular transactions.
The general law regarding the appropriation of payments was laid down with great clearness by Lord Macnaghten in the case above quoted, page 293. He says—“When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment, the right of application devolves on the creditor.… The creditor has the right of election up to the very last moment, and he is not bound to declare his election in express terms. He may declare it by bringing an action, or any other way that makes his meaning and intention plain. Where the election is with the creditor it is always his intention, express or implied or presumed, and not any rigid rule of law, that governs the application of the money.” The noble and learned Lord states this as the law of England, but in this matter the law of England and the law of Scotland are identical, and have been so since the leading case known as Clayton's case (better known in Scotland as Devaynes' case) was decided.
According to the above statement of the law, and it being admitted that no appropriation was made at the times of payment by the debtor, the question in the present case comes to be whether by rendering to the principal debtor the account, the pursuers, Hay & Company, Limited, appropriated the payments in question to the first items in their account against Mr Cromb. I am of opinion that they did not.
In considering this question it is obvious that a great deal must depend on the form of the account, because if the account is so stated as to entitle the debtor to assume that there has been appropriation by the creditor of certain payments to certain items of debt the result will be that the creditor will be barred from going back upon that appropriation. Now, the account No. 18 of process is not stated as a proper account-current at all. It first contains a record of all the goods sold or advances made to Mr Cromb by the pursuers, and next, below that, a record of all the payments made by Mr Cromb to the pursuers. Each of these columns is added up, the one deducted from the other, and a balance struck. Now it appears to me that this is very far from being an account current. It was argued for the defender that an account stated in this way was in no view essentially different from an account stated with the debit and credit entries running side by side with each other, and that the fact of its not being so stated in the present case might simply be due to there not being room on the same sheet of paper so to state it. I do not think that this argument can be accepted seriously. If the debit and credit entries had been placed side by side, that might have raised a presumption of more or less force to the effect that the entries were to be set against each other in order of date—in short, that the account was an account current. In the present case there are two summations, and the fact that the one is deducted from the other in order to show the balance due certainly cannot turn what is merely a summation of items of debit separately from the items of credit into an account-current. Assuming that the pursuers desired to render a statement to Alexander Cromb showing the amount of his indebtedness to them, but without inducing him to believe that they were stating their account as an account-current, it is difficult to see in what other form they could have stated their account. I therefore have no doubt whatever that the account contains in itself nothing that the debtor was entitled to rely on as an appropriation of particular payments to particular items of debt, and nothing to show that the creditor appropriated or intended to appropriate payments in that way.
The two leading cases regarding the appropriation of payments in order of date to extinction of debit entries in order of date, namely, Devaynes' case, 1 Mer. 530, and the case of Bodenham v. Purchase, 2 B. and A1., page 39, were both cases of bankers' accounts, and indeed bankers' accounts are the typical examples of accounts-current. In Devaynes' case Sir William Grant, who was the Master of the Rolls, says that where an account-current is kept between parties as a banking account “there is no room for any other appropriation than that which arises from the order in which the receipts and payments take place and are carried into the account. Presumably it is the sum first paid in which is first drawn out. It is the first item on the debit side of the account that is discharged or reduced by the first payment on the credit side. The appropriation is made by the very act of setting the two items against each other.”
This rule has been adopted both in England and in Scotland, but, as pointed out by the noble and learned Lords who decided the case of “ The Mecca,” the rule in Devaynes' case had come to be considered a rule probably of much more force and
Page: 255↓
Among the Scotch cases which were cited at the debate the case of Lang, 22 D. 113, may be taken as typical of the ordinary current account. In that case it was an account between agent and client, but the agent had from time to time been accustomed to make advances to or on behalf of the client, and, on the other hand, the client from time to time made payments to the agent by cash or by bill or note, and the account-current was kept in practically the same way as a banker's account, although the relation of the parties was that of agent and client. It was accordingly there held that the account was an account-current to which the principle of Devaynes' case was applicable.
The case of Dougal v. Lornie, 1 F., 1187, was a typical case of a different kind of account. That was a case of a plumber's account divided into sections according to work done from time to time, and the account sued for was the fifth of a series of accounts rendered in a similar way. For the work charged in these accounts various payments to account had been made, and it was there held that indefinite payments to account of a tradesman's account were not to be ascribed to the items or sectional accounts in order of date so as to preclude the debtor from subsequently challenging any item in the account. Lord Adam there pointed out that “the rule in Devaynes' case applies to cash accounts current, and has no application whatever to a tradesman's accounts. Payments to account of a tradesman's account go not against individual items in order of date but against summation.”
There may, however, be accounts-current consisting of entries other than proper cash entries. The case of Mackinlay v. Wilson, 13 R. 210, was a case of this kind. That was a case where two horse-dealers had frequent dealings with each other, and in the account sued for by Mackinlay, which was titled “account-current,” horses and harness and cash were entered on the debtor side of the account, and horses, cash, and other things were entered on the other, the dates on both sides being consecutive. There prescription was pleaded, and it was against that plea that the pursuer pleaded that the account was an account-current and that prescription was excluded. Before deciding the question of prescription a proof was led, and on that proof the Court was satisfied that it was the intention of parties that the transactions should be set against each other from time to time as they occurred, and that the account therefore was rightly stated as an account-current, the one side of the account being set against the other, and that accordingly the plea of prescription should be repelled—see opinion of Lord Adam, page 217.
The case of Batchelor, 19 R. 903, forms a useful contrast to Mackinlay's case, for there it was held that a merchant's account with cross-entries was not a proper account-current. There was no proof in that case, and it was decided simply upon the account as it stood, Lord Trayner saying “This is simply a merchant's account.”
From an examination of the various cases which were quoted at the debate it is evident that the important alteration in the statement of the law that was introduced by the decision in the case of “ The Mecca” is this, that while in several of the former cases the law was stated to the effect that, failing appropriation by the debtor or the creditor, the law appropriated payments to items of debit in order of date, in the case of “ The Mecca” the law was stated to the effect that failing appropriation of the money by the debtor the appropriation of the money is governed by the intention of the creditor, expressed, implied, or presumed, and that such intention may be presumed from the form and statement of the account rendered by the creditor to the debtor. Applying this law to the present case, my opinion is that it cannot be presumed from the account that the creditor intended to appropriate payments to account as such after 1st August 1904, to the items of debt in order of date, and that by making the claim and raising this action for £67, 4s. 6d. they have shown that they do not so appropriate them.
But the pursuers maintain, further, that if any presumption arises from the statement of the account that is displaced by the fact that at the times of the payments which the defender seeks to impute in order of date to the debt incurred by Cromb before 1st August 1904, they were appropriated by the parties to particular items, and, to begin with, that the very first payment after 1st August, namely, £4 on 16th August, was paid for hay bought at Southtown sale, and in response to a letter dated 11th August 1904. This is established by the proof. The course of dealing with the new firm accordingly commences with a payment appropriated to a specific item. Again, it is proved that certain cows were paid for by instalments of £1 per week, and then again it appears that Hay & Company, Limited, were frequently finding fault with Mr Cromb for not paying for particular purchases which he made from them, and for not sending in stock to be sold by them so as to pay for such purchases. In short, without going into further details, I am of opinion that it appears from the whole of the proof that when those who had the management of Hay & Company, Limited, who of course had a responsibility to the company, commenced dealing with Mr Cromb on and after the incorporation of
Page: 256↓
On both the grounds above dealt with I am of opinion that the judgment of the Sheriff should be affirmed, and the case remitted back in order that the question of interest may be dealt with.
The Court dismissed the appeal.
Counsel for the Appellant (Defender)— Hunter, K.C.— J. Macdonald. Agents— Menzies, Bruce Low, & Thomson, W.S.
Counsel for the Respondents (Pursuers)— The Dean of Faculty (Campbell, K.C.)— Jameson. Agents— Carmichael & Miller, W.S.